Sarasota County Investment Policy 2018

Sarasota County Investment Policy 22 70. INVESTMENT COMPANY ACT OF 1940: Federal legislation that sets the standards by which investment companies, such as mutual funds, are regulated in the areas of advertising, promotion, performance reporting requirements, and securities valuations. 71. INVESTMENT POLICY: A concise and clear statement of the objectives and parameters formulated by an investor or investment manager for a portfolio of investment securities. 72. INVESTMENT-GRADE OBLIGATIONS: An investment instrument suitable for purchase by institutional investors under the Prudent Person Rule. Investment-grade is restricted to those obligations rated BBB or higher by a rating agency. 73. LETTER OF CREDIT: An obligation issued by a bank on behalf of a bank customer to a third party. There are many different kinds of letter of credit. The two most common are commercial letters and standby letters. A commercial or trade letter of credit is a bank promise to pay the third party for the purchase of goods by the bank's customer. A standby letter of credit is a bank promise to pay the third party in the event of some defined failure by the bank's customer, usually, but not always a failure to pay. Standby letters of credit are often used as credit enhancements for securities. 74. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. 75. LIQUIDITY RISK: The risk that a liquid asset cannot be converted without a substantial loss of value or earnings. 76. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): Investment pools that are not registered with the Securities and Exchange Commission (SEC) and are exempt from SEC regulatory requirements because they fall under a governmental exclusion clause. While this exemption allows pools greater flexibility, it also reduces investor protection. These pools typically combine the cash of participating jurisdictions and invest the cash in securities allowed under the state’s laws regarding government investments. By pooling funds, participating governments benefit from economies of scale, full-time portfolio management, diversification, and liquidity (especially in the case of pools that seek a constant net asset value of $1.00). Interest is normally allocated to the participants on a daily basis, proportionate to the size of their investment. 77. MARK-TO-MARKET: The process whereby the book value or collateral value of security is adjusted to reflect its current market value. 78. MARKET RISK: The risk that the value of a security will increase or decrease as a result of changes in market conditions. 79. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. 80. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase—reverse repurchase agreements that establishes each party’s rights in the transactions. A master agreement will often specify, among other things, the right of the buyer- lender to liquidate the underlying securities in the event of default by the seller borrower. 81. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable.